Mitt Romney Believes in Expansionary Fiscal Policy

Matthew Yglesias:

Mitt Romney on Fiscal Policy: The GOP candidate sounds like Paul Krugman except without the qualifications about the zero lower bound and the liquidity trap:

Halperin: You have a plan, as you said, over a number of years, to reduce spending dramatically. Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?

Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.

So front-loaded tax cuts, offset over time by phased-in spending cuts. That's a pretty textbook Keynesian approach. A fair amount of scholarship indicates that doing your stimulus on the tax side gets you less bang for your buck, but there are logistical considerations on the other side—it's easier to do a massive tax cut really quickly than to ramp up a useful spending program.

Comments

Mitt Romney on Fiscal Policy: The GOP candidate sounds like Paul Krugman except without the qualifications about the zero lower bound and the liquidity trap:

Halperin: You have a plan, as you said, over a number of years, to reduce spending dramatically. Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?

Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.

So front-loaded tax cuts, offset over time by phased-in spending cuts. That's a pretty textbook Keynesian approach. A fair amount of scholarship indicates that doing your stimulus on the tax side gets you less bang for your buck, but there are logistical considerations on the other side—it's easier to do a massive tax cut really quickly than to ramp up a useful spending program.